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O2 will allow its customers to unlock their iPhones after their current contracts expire, according to Matthew Key, chairman and CEO of O2's parent company, Telefónica.

In an interview held as part of Times Online's "Ask the Boss" feature, Key left open the question of whether O2 would unlock the phones for their customers, or merely not object if they chose to do so:

Once the iPhone becomes available on other UK networks, we will allow O2 customers to unlock their iPhones, although of course they will still need to honor any outstanding contract period they have. At the end of their contract period, they are entirely free to move to another operator

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A reader had asked Key to comment on a rumor that O2 would "not allow people to unlock their iPhone, even if they are out of their contract period." Unlocking phones after contracts expire is much more common in the UK than it is in the US and other markets, so any move by O2 to restrict that ability would be poorly received.

O2 also offers the so-called "Pay & Go" option for users without a contract, that offers 12 months of unlimited (using the UK definition of that term) web and WiFi, though without Visual Voicemail, call merging or Internet tethering. These users will also be able to unlock after paying a fee of £15.

As exclusive-carrier arrangements in many countries are increasingly coming to an end, it will be interesting to see which service providers go O2's direction and which don't. O2 clearly thinks that they can hold on to customers by offering low prices, so this move should spur healthy competition in the UK market.